Fundamentals of Corporate Finance Chapter 13 Exam Bank Solution Manual Already Passed
expected return - Answers the return on a risky asset expected in the future
portfolio - Answers a group of assets such as stocks and bonds held by an investor
portfolio weight - Answers the percentage of a portfolio's total value that is invested in a particular asset
systematic risk - Answers a risk that influences a large number of assets; market risk
unsystematic risk - Answers a risk that affects at most a small number of assets; unique or asset-specific
risk
principle of diversification - Answers spreading an investment across a number of assets will eliminate
some, but not all, of the risk
systematic risk principle - Answers the expected return on a risky asset depends only on that asset's
systematic risk
beta coefficient - Answers the amount of systematic risk present in a particular risky asset relative to
that in an average risky asset
security market line (SML) - Answers a positively sloped straight line displaying the relationship between
expected return and beta
market risk premium - Answers the slope of the SML - the difference between the expected return on a
market portfolio and the risk-free rate
capital asset pricing model (CAPM) - Answers the equation of the SML showing the relationship between
expected return and beta
cost of capital - Answers the minimum required rate on a new investment
expected return - Answers the return on a risky asset expected in the future
portfolio - Answers a group of assets such as stocks and bonds held by an investor
portfolio weight - Answers the percentage of a portfolio's total value that is invested in a particular asset
systematic risk - Answers a risk that influences a large number of assets; market risk
unsystematic risk - Answers a risk that affects at most a small number of assets; unique or asset-specific
risk
principle of diversification - Answers spreading an investment across a number of assets will eliminate
some, but not all, of the risk
systematic risk principle - Answers the expected return on a risky asset depends only on that asset's
systematic risk
beta coefficient - Answers the amount of systematic risk present in a particular risky asset relative to
that in an average risky asset
security market line (SML) - Answers a positively sloped straight line displaying the relationship between
expected return and beta
market risk premium - Answers the slope of the SML - the difference between the expected return on a
market portfolio and the risk-free rate
capital asset pricing model (CAPM) - Answers the equation of the SML showing the relationship between
expected return and beta
cost of capital - Answers the minimum required rate on a new investment
